Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 122

BANK OF AMERICA
www.bankofamerica.com
Facts:
• 1904: Founded by son of Italian immigrants
• 1930s: Survived the Great Depression
• 2008: Acquired Countrywide Financial (home loans)
• 2009: Acquired Merrill Lynch (investments)
The 2008-2010 financial crisis was caused by a speculative bubble in home prices amidst far too much debt. As home prices fell, the excessive debt of families, banks, and other financial institutions became obvious. People spent less and tried to save or simply survive for those who had lost their jobs and homes. Corporations cut costs by laying off workers and rapidly slowing the inventory flowing in global supply chains. Home builders built far fewer homes and tried to quickly reduce debt. Banks lent less and credit became very difficult to obtain. As the losses mounted, stock markets fell sharply. By the end of 2008, many governments around the world reacted to prevent another Great Depression like the one that occurred in the 1930s.
To keep the economic systems working, the U.S. government spent more than $1 trillion ($1,000,000,000,000) to support failing financial institutions and banks, extend unemployment benefits, increase employment, and support the sales of cars and homes. When it appeared that Countrywide Financial (home loans) and Merrill Lynch (investments) were in serious trouble, the U.S. government helped broker deals in which Bank of America took over both firms with the help of government loans and guarantees. However, Bank of America repaid the $45 billion in debt to the government at the end of 2009.
To demonstrate the effect of the recent financial crisis, we will use a small custom home builder called Horizon Homes which used Bank of America. As you can see, this firm first showed losses in 2007 since home builders were hit before many other types of firms in this financial crisis.
Find the gross profit for each year by multiplying gross sales by the profit margin.